A Challenging Acquisition Pays Off in China

For many multinational corporations, buying a Chinese company carries particular risks. Such was the case when Whirlpool made a complex deal to buy a majority stake in Hefei Sanyo, which was partially government owned. Compared to Whirlpool’s business in China, Hefei Sanyo was more than triple its size. Despite the challenges, the deal created a multinational company with a true, locally capable team in China.

Whirlpool was tackling a number of complexities when looking to acquire Hefei Sanyo in China:

How to Grow in an Increasingly Competitive Market. Whirlpool had been in the China market for more than 30 years but found it difficult to grow given the rise of capable local competitors, rapidly evolving trade structure (a mix of modern and traditional methods), and evolving consumer preferences.

How to Build the Capabilities Necessary to Achieve Growth. Whirlpool recognized the strategic importance of China, but by 2012 it also recognized that building the capabilities required to win organically would be difficult. While it already had partnered with local companies for production and technology, it had not done so on the commercial side, particularly with the sales function. At this point, Whirlpool saw an opportunity for buying a stake in Hefei Sanyo.

How to Acquire This Chinese Company Given the Multiple Stakeholders. Whirlpool needed a controlling interest in Hefei Sanyo so it could consolidate the company’s revenue. This meant acquiring a greater than 50% stake in the company, but doing so would be difficult. Hefei Sanyo, a listed company, was three times bigger than Whirlpool’s Chinese operations. Whirlpool also owned a joint-venture production facility with another competitor. In addition, the Hefei government was a 35% shareholder of Hefei Sanyo. This would be the first time a foreign company would ever take majority stakes in a listed Chinese company without triggering a tender offer.

How to Gain Government Support for the Deal. Whirlpool had to demonstrate how the deal would benefit the local area. This included creating an aggressive growth strategy for Hefei Sanyo, relocating Whirlpool’s China headquarters and R&D to Hefei, and expanding local operations.

How to Integrate This Local Company into Whirlpool’s Global Culture. Whirlpool needed to figure out how to effectively integrate a local Chinese company into its global operations. It didn’t want to spoil Hefei Sanyo’s local know-how, but it needed to bring in the right knowledge and capabilities to further support the new combined organization.

Whirlpool turned to BCG for end-to-end support during the acquisition. Together, the team:

Partnered with financial advisors and lawyers to develop a transaction structure for operational control at minimal cost and risk

Strategically orchestrated a multiparty dialogue using a detailed timeline

Conducted informal and formal bridge-building efforts to gain specific understanding of government officials

Helped articulate how the deal would bring benefits, not just to Whirlpool but also China

Conducted due diligence in a challenging environment through in-depth field work, detailed market modeling, and assessment of distributor qualities

Identified key decision makers and influencers to help manage the deal process

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